Starting off the year right is important, especially when it comes to your finances. That may seem like a massive undertaking, but there are some quick and easy steps you can take now that can have a huge impact on your finances.
The ABC15 Smart Shopper team spoke with certified financial planner and Arizona State University lecturer Debra Radway about the things she says everyone can and should do now to improve their finances.
This is especially true after the holiday shopping season. According to Nerdwallet.com, 29% of those who put holiday gifts on a credit card in 2020 were still paying off those balances in 2021. Plus, the report said that 75% of shoppers in 2021 were planning to use a credit card to pay for gifts, charging $620 on average.
"I don't think most people realize the true cost of carrying that debt," Radway told us. "Basically, if you're carrying $1,000 of credit card debt, and you just make the minimum payment, it's going to take you 117 months to pay that off. And the interest that you will pay is over $1,000. So, carrying credit card debt is super costly. You know, even if you get an item on sale, if you put it on your credit card and don't pay it off that much. That month, that item could end up costing you almost double what you paid for it."
Radway suggests that people trying to pay off their credit card debt look at the interest rates of each card.
"Rank them from the highest interest rate down to the lowest interest rate and then, start paying off the highest interest rate first. Working your way down the credit cards," Radway suggests. She also adds, "Now sometimes people get a feeling of success if they can just pay off a credit card and close it. So, if you've got rates between 20 and 18%, and you got a small balance on one, you might just be better off paying that credit card and either closing it or cutting it up so that you won't use it again. Because it gives you a feeling of success that you're making progress."
This is also going to improve your overall credit score. That can impact everything from your mortgage to your car payments.
"The difference between a mortgage payment if you have a 740 credit score or above, or a 640 credit score could be hundreds of dollars, depending on the type of mortgage and the amount of mortgage. So improving your credit score can make a big difference when you're borrowing for a house or a car and result in major savings," Radway said.
While these two tips may be things you have already heard before, Radway also told us where homeowners can find big savings right now: see if you have Private Mortgage Insurance, or PMI. You may be able to take that off your monthly note.
"We've had housing prices go up so dramatically in the Valley over the last year," Radway explained. "Maybe you purchased your home, and you didn't put 20% down when you bought your house. If your house has gone up dramatically in price, you should talk to your lender about potentially being able to drop the private mortgage insurance. And private mortgage insurance could be hundreds of dollars on your monthly mortgage payment. So, getting that removed, getting your house reappraised, can be a huge savings."
She also strongly suggests that anyone who can, should contribute to their retirement or 401K. Radway told us how much people could be earning back in those savings accounts because some companies agree to match a percentage of what their employees put into it.
"In effect, you can give yourself a raise -- if you're not contributing to your 401k. And, if you do start contributing, a lot of employers will match a big portion of your contribution. I looked up a few companies like Amazon, Walmart. Walmart matches 6% of a contribution to a 401k. So that's one way to give yourself a raise and prepare for your retirement," said Radway.
Many companies with retirement funds have set up a website for employees to track their savings. There are also typically tools online to help you look at when you want to retire and calculate how much you'll need to save from each paycheck you earn to hit your target date.
Debra Radway is a certified financial planner, trustee and investment advisor and provides financial advice to clients nearing retirement. She is also currently a Lecturer at the W. P. Carey School of Business at ASU.